Market regulator Securities and Exchange Board of India (SEBI) has notified amendments to its buyback regulations, restoring open-market share buybacks for listed companies through stock exchanges from 1 August 2026. The revised framework also shortens timelines, strengthens investor safeguards and eases compliance requirements for listed companies.
SEBI had phased out the stock exchange route from April 2025 over concerns relating to unequal shareholder participation and tax distortions. Following changes in the taxation framework and feedback from market participants, the regulator has concluded that these concerns have largely been addressed.
Open-market Buybacks Return
Under the amended regulations, listed companies can once again buy back their shares through the stock exchange route, in addition to the existing tender offer and book-building mechanisms.
However, the regulator has imposed stricter conditions. Buybacks through the stock exchange route cannot exceed 15% of the company's paid-up capital and free reserves, calculated on both standalone and consolidated financial statements.
SEBI has also significantly reduced the timeline for completing open-market buybacks. Instead of the earlier six-month window, companies must open the buyback within four working days of the public announcement and complete the process within 66 working days from the date of opening.
Further, companies will be required to utilise at least 40% of the earmarked buyback amount during the first half of the buyback period, in line with the Board's decision in June.
Merchant Banker Appointment Optional
To reduce compliance costs and improve ease of doing business, SEBI has made the appointment of a merchant banker optional for companies undertaking buybacks.
Where a merchant banker is not appointed, compliance responsibilities will be shared among the company, its compliance officer, statutory auditor, secretarial auditor and stock exchanges, depending on the nature of the requirement. These include public announcements, due diligence certification, escrow monitoring, certification of volume-weighted average prices (VWAP), compliance with share extinguishment requirements and submission of the final report.
Enhanced Shareholder Communication
To improve transparency, companies undertaking open-market buybacks must communicate the offer electronically to all shareholders within one working day of the public announcement. This will supplement the existing requirement to publish newspaper advertisements.
SEBI has also removed the requirement for a separate buyback trading window. Open-market buybacks executed through stock exchanges will now be treated as normal market transactions and the identity of the company as the purchaser will not be displayed on the trading screen.
Promoter Shares To Remain Frozen
To prevent promoter participation during the buyback period, SEBI has directed that shares and other specified securities held by promoters, promoter groups and their associates will remain frozen at the international securities identification number (ISIN) level.
The freeze will apply from the date the Board or shareholders approve the buyback until the offer closes. Limited exemptions have been provided for shares transferred following the invocation of encumbrances created before the commencement of the buyback.
Safeguards on Public Shareholding
SEBI has introduced an explicit provision prohibiting companies from announcing buybacks that would result in a breach of minimum public shareholding (MPS) requirements.
The regulator has also aligned the minimum gap between two buyback offers with the provisions of the Companies Act, 2013, replacing the earlier timeline prescribed under the buyback regulations.
Tax Changes Enabled the Move
SEBI had discontinued the stock exchange route from April 2025 because buybacks executed through exchanges followed a price-time matching mechanism that often resulted in unequal shareholder participation.
The regulator had also cited tax distortions under the earlier framework, under which companies paid buyback tax while shareholders participating in the buyback were exempt.
Following changes introduced through the Finance Act, 2026, shareholders are now taxed on actual capital gains arising from buybacks, bringing their tax treatment broadly in line with normal secondary market transactions.
According to SEBI, the revised tax framework removes the differential tax advantage that previously existed between shareholders participating in buybacks and those selling shares in the secondary market.
Industry-backed Reform
SEBI's decision follows representations from industry bodies, including FICCI (Federation of Indian Chambers of Commerce and Industries) and the Association of Investment Bankers) and the Association of Investment Bankers of India, which argued that open-market buybacks are an efficient capital allocation tool used in several global markets.
They said the revised tax regime had removed earlier inequities and that restoring the stock exchange route would provide companies with greater flexibility to return surplus cash to shareholders, support share prices during periods of market volatility and improve capital management.
According to SEBI, the amended regulations are intended to streamline the buyback framework, improve operational efficiency, facilitate ease of doing business, strengthen investor protection and align India's buyback regime more closely with international practices.
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